ERP Systems: Howthey allow Construction Companies to Increases Profitability and turnout Successful by Assisting their Company Meet their Goals
Table of Contents
Historyof Information Systems in the Construction Profession………………………………….5
TheERP Systems use in the Construction Companies……………………………………………6
HowERP Systems Allow the Construction Companies Increase theirProfitability……………..7
Advantagesand Disadvantages of ERP Systems in Construction Companies……………………8
Thepaper is about the ERP systems studied to determine how theyfacilitate profitability and realization of set goals in theconstruction industry. Here, the introduction defines and expoundswhat EPR systems means in the construction business. The ERP systemsare defined as the methodology for the combination of planning andcontrol of the available sources, which requires the production andcompletion of the company’s overall output. The paper also focuseson the history of ERP systems, which provides the rest of the paperwith a background for better understanding of the application in theconstruction industry. The ERP systems show how it contributes to theprofitability of the industry and how to realize set goals. The paperalso focuses on the advantages and disadvantages of ERP systems inwhich it explains the impact it has on the construction industry.Additionally, the paper proposes a series of recommendations based onthe disadvantages accrued.
ERP Systems: How they allow Construction Companies to IncreasesProfitability and turn out Successful by Assisting their Company Meettheir Goals
ERPtemplates used for combining business activities have since beendeveloped and applied effectively in the financial accounting,manufacturing, and distribution sectors however, this has not beenthe case in the construction industry. Enterprise Resources Planning(ERP) refers to a methodology used for the combination of planningand control of all the resources required for the production andcompletion of the company`s overall output.1This methodology was first used in the manufacturing sector where anERP template was designed to assist in transactional areas within theenterprise, which include sales, production, and finance. A completepackage of ERP software application was created by the softwaredevelopers and was focused on varied manufacturing activities.
The construction industry is more fragmented based on its approach inthe application of an ERP system. There are different types ofcontractors and subcontractors in this industry, accompanied byhighly specialized ERP software modules used for estimating,planning, and controlling available resources, which have in turnprevented the application of one uniting methodology ERP template.2Historically, most construction companies established software andmethodology based on the skill or departmental level and not on theenterprise level by using a specified ERP software tools forestimation, scheduling, and contract control.3The ERP systems vendors have attempted to accommodate theunavailability of a well-design integrated approach with expandedinterfaces for those seeking a solution by using the ERP systems.
History ofInformation Systems in the Construction Profession
The ERP systems have a rich history, which began in the middle ofthe 20th Century. From its initial beginnings, the main purpose ofthese tools was to assist in businesses, and in this regardconstruction profession, to operate more efficiently. The ERP systemswere established from its predecessor, the MRP (ManufacturingResource Planning). In the early 1960s, the first ERP systems weredesigned for purposes of organizational and scheduling as importanttools in the manufacturing companies.4
The functional use of the next generation ERP software systems wentbeyond what were the confines of individual internal use inconstruction companies and started to include both the suppliers andthe customers. Towards the end of the 1970s, the use of hardwarecoupled with the first PCs started to gain ground in the business,especially in the construction business. What followed was theemergence of accounting capacities and business processes (Srivastava& Batra, 2010). The start of the 1980s saw the establishment ofbusinesses regarded as the closed-loop business process largelysupplied then by the IBM Company.
The late 1980s and early 1990s saw the surfacing of new softwaresystems, which was known in the construction industry as theEnterprise Resource Planning (ERP) systems, and was targeted at largeand complex business companies. These expensive, complex, proprietarypowerful systems became off-shelf solutions, which required businessconsultants to design and implement them according to therequirements of the companies.5In most cases, the ERP systems were targeted at re-engineering thecompanies` business processes towards accommodating the softwarelogic to streamline data.
Anew era began in the 1990s, a time characterized by explosivetechnological growth, especially with the ERP software systems, whichwere targeted at integrating business processes throughout the entirefunctional areas. The "order-to-cash" and "purchase-to-pay"were regularly incorporated.6A number of software options and new developments in hardware grewquickly, by the beginning of the millennium saw major softwarebusiness vendors emerge gradually.
The ERPSystems use in the Construction Companies
Incomparison, the construction industry works differently from otherindustries. The construction companies, for instance, involves peoplefrom the lowest level of the hierarchy such as the plumbers, plasterpeople, construction labors, and painters among others. Theseindividuals are unlikely known to have a slight idea or knowledgeabout all things computer.7On the other hand, the construction companies have the directorsmaking up the board, the CEOs at the helm of the company, and manyother qualified members of the managerial staff. Therefore, theconstruction companies are said to involve varied variations in itsstructural working.
These variations in the construction companies and the entireindustry act as a huge challenge in the ERP systems` development,more so for the construction enterprises. The construction industryis also faced with many other challenges, which also need to alignwith other businesses related to the industry, for example, equipmentand material suppliers, contractors, software vendors, and clients.8The ERP systems are applied by the construction companies towardsimproving responses and relationships with the customers, enhancingthe flexibility of the companies, strengthening partnerships at the supply chain level, improving capabilities in the decision making,reducing the time taken for completion, and lowering of costs.
Additionally, the ERP systems are designed in a manner that itintegrate and automate most of the companies` business processes, forexample, accounts, human resources, administration, billing andinvoicing, inventory, sales, and managing construction site.9ERP used is targeted at automating all the processes involved inoperating construction enterprises while maintaining the informationabout the enterprise. It is also aimed at reducing the redundanciesabout construction data.
How ERPSystems Allow the Construction Companies Increase their Profitability
For proper sophisticated functioning, a construction company orenterprise is divided into a number of departments. Each departmentwithin the enterprise is mandated to function independently but isclosely interrelated with one another. Every department is expectedto offer services to other departments towards achieving one set goalwithin the company or enterprise. For instance, the main goal orobjective for construction companies is targeted at establishing realestate properties, which could be beneficial from a commercial pointof view.
The ERP systems use in the construction companies increases theirprofitability levels and in the attainment of set goals. ERP acts asan ideal tool for the development of the Business Intelligenceapplications. Building BI through the use of the ERP systems is to beused for extracting important information about the constructionbusiness and then using it direct business operations towards theright direction.10Fundamentally, Business Intelligence (BI) is beneficial in theextraction of the right information to be used in the running of theconstruction business.
The construction companies are able to cut costs and becomeprofitable, which in turn realizes their set goals. Theimplementation of an ERP system by the construction company, forinstance, remains a challenging project to undertake. However, italso a worthwhile initiative to secure the construction company inquestion in a competitive market.11A successful implementation of the ERP system moves the enterprisefrom having one piece-meal enterprise procedure that re-engineers aprofitable growth to a higher level. Based on the implementation ofthe ERP system, Shields noted that the construction company will beable to realize up to approximately 25% of the inventory costs, 18%reduction costs in manufacturing, 16% in operation costs, and 14%reduction in administrative costs.12
These numbers, according to Shields, are able to be substantiatedand, therefore, can be used for the calculation of the ROI.13Additionally, the construction companies are able to realize theirfinancial goals from within the finance departments. It is thesedepartments that production costs are calculated and financesallocated to boost the manufacturing and distribution processes.Payables, receivables, gender ledger, and fixed assets formscollective form of evaluation and transactional tracking ofperformances within the construction enterprises.
Advantages andDisadvantages of ERP Systems in Construction Companies
ERP systems application in a construction business provides it with arich source of granular information regarding all aspects of thebusiness involved. It represents a natural by-product, which liesdeep in the business, collect and systemize day to day functioning ofthe company involved. Here, the BI discussed is able to carry thedata one more step, which in turn allows the company to maketechnical and strategic decisions regarding how to handle and run theconstruction business.
Secondly, while it may be possible to carry out a businessintelligence (BI) with a single reporting tool wired into a singletypical ERP system, to take advantage of the process will requiresort of specialized ERP tools.14On the other hand, a range of business intelligence tools may beavailable, but of importance is the process of specialized databasetype to be used in business for the aggregation of informationanalysis about the importance of ERP systems.
One problem that a lot of construction businesses found themselves inis the overdependence and overabundant data, which in turn result inthe businesses drowning in unaccounted statistics and numbers, whichbecome difficult to apply them for the better.15Here, these companies may end up costing themselves a lot of money byknowingly or unknowingly abandoning any information this data may beoffering. ERP systems can into play here, and is advantages inensuring the information from these data is harnessed when it coupledwith the BI and thus becomes easily accessible and crucial.
According to Pelphrey, the ERP tools is at a maturity level wherebythey can elevate top executives to a level where they will be able toadd value and strategic advantage to the company affiliated withthem.16The ability to suggest better decision support with a well-integratedbusiness data remains a crucial factor in ensuring data remains"actionable intelligence."17Here, the existing synergistic kind of relationship establishedbetween the BI and ERP systems is a perfect storm in ignitingimproved visibility and performance in these construction companies.
The combination of this ERP data system with one of its tools,Business Intelligence (BI), is that they are able to transform data,which is collected and planned to the entire ERP systems, and turn itinto a useful and easy to understand information. This informationcan, in turn, be used and utilized to assist the constructioncompanies in realizing its full potential. These companies are ableto achieve full potential following the ability of the ERP systems toeasily integrate with the BI to offer a complete retrieval of data,which the company, for example, had amassed throughout itsconstruction, manufacturing, and distribution process.
The Business Intelligence (BI), which is one of the products of ERPsystems, represent a number of theories, processes, methodologies,technologies, and architectures, which transform unused or raw datainto a useful and meaningful information for purposes of businesssuccessful.18In construction, the ERP systems are able to use this tool, BusinessIntelligence (BI), especially when a customer is making a purchase ofa particular kind of the construction business. Here, the customer isin a position to provide a number of feedbacks to the company, and inturn, the company would take the feedbacks after a specific intervalin accordance to the completion of the construction for the customer.
After taking the above-mentioned customer feedbacks, the system setin place will be able to analyze all the feedbacks, and, in turn,provide well-thought suggestions to the company`s higher managerialpositions to handle the feedbacks in a proper way and make sounddecisions. The advantage here is that the use of BI in theconstruction ERP is that it assumes the ERP system by furtherallowing the companies` managerial staff makes technical andstrategic decisions concerning the running of the constructionenterprises.19On the other hand, the stakeholders are able to give feedbacks to theconstruction companies in questions. For instance, the customers,suppliers, staff, accountants, and contractors, are an example ofstakeholders that can provide feedback regarding star ratings.
Finally, most construction companies collect a larger amount of datathrough this ERP system from their daily business operations. Inorder to keep track crucial information, there is a need for theconstruction business to apply a wider range of software templates,for example, Access, Excel, and other different database applicationthroughout a range of departments.20Here, construction ERP system will make it earlier to retrieve thedata and information at the right time, while performing dataanalysis.
In construction companies, ERP software systems are expensive. It isnoted that the process involved in planning, customization, testing,configuration, and implementation is very high. Apart from its highcosts, the deployments of ERP systems are highly time-consuming.21For example, successful deployment within a reputable and highlyvalued construction company, the whole procedure, including carryingout due diligence, take approximately one to three years to ensurefull completion and functionality of the software.
Secondly, there is little customization of the software, and in turn,the EPR system in question may not work well with the businessprocess. Again, there may be too much customization process, which inturn could slow down or make it difficult for the system to beupgraded.22As a result, the payback or savings costs will be difficult torealize immediately after the ERP system is implemented.
Again, user participation is crucial to the success of implementingthe ERP projects within construction companies. Therefore, a simpleuser interface and exhaustive and intensive user training could beessential. However, the ERP systems are difficult to learn andapply.23The ERP systems application also comes with additional costs as aresult of implementing construction ERP, for example, the WAN linksupgrade and a new IT infrastructure.
It is also difficult to transfer existing data to totally new ERPsystems, which is also almost impossible to achieve. The integrationof the ERP systems is equally difficult to integrate with stand-aloneERP software systems. These integration activities may result in theconsumption of a lot of time, resources, and money if attempted.
One common fallacy with ERP systems implementation in constructioncompanies is that the management is well acquitted with theundertaking of the task. There is a need to not only identify andunderstand the enablers but also in taking action in ensuring thesuccess of the ERP systems. First, there has to be a project startupbefore anything else. For purposes of ensuring success regarding timeand costs, there will be a need to perform due diligence to ensurethe project is rightfully placed by making sure the right informationand personnel are involved.24This will be done by preparing and reviewing business, IT, and ERPstrategy.
Secondly, the implementation of the ERP systems will impact on themanner in which the construction company in question will update itsbusiness processes and change its systems transactions.25Again, Information Technology should not be an area of focus for theproject. Therefore, the management should be involved in thesponsorship of the project, which requires the use of ERP systems,issue proper resolution to emerging difficulties, and escalation ofthe issue. Here, this kind of involvement will ensure the managementis kept up to date and well-informed on the construction project inprogress.
Again, the ERP system may not satisfy all the requirements of theconstruction company. There will be need establish a strategy andproperly understand all the ERP components, and the manner in whichit will fit with other tools and systems like the BusinessIntelligence (BI). Thus, the business requirement should first beunderstood and planned to satisfy the demands.26It is also important to understand that a section of the businessrequirements will only be satisfied. Therefore, a plan should be puttogether in order to meet other requirements, for example, businessintelligence, data management, and social media. Regarding theproject team, it should be made up of full-time personnel, whichshould include the project manager. Here, proven methodologies shouldonly be used for implementation. Again, the personnel involved withthe project should be empowered to make the right decisions, and acompetency center created for support needs after the completion ofthe project. Additionally, good communication should be developedbetween the company and the project team.
Regarding the ERP systems, the construction industry, in itsapproach, is more fragmented. In its initial stages, the methodologyused for the application of ERP systems was designed to assist inhandling the transactional area within the construction business.Different contractors and subcontractors in the industry applyspecialized ERP software for purposes of planning, controlling, andestimating the use of available resources in the company in question.ERP systems were first used for purposes of scheduling organizationalconstruction procedures through the use of important software toolsbefore the introduction of Business Intelligence (BI) in the early1990s.
The construction companies increase their profitability because theERP systems application on operations helps to facilitate the cuttingof costs, which when broken down represent approximately 25% of theinventory costs, 18% reduction costs in manufacturing, 16% inoperation costs, and 14% reduction in administrative costs. Theincrease in profitability levels also reflects on the companies`realization of set goals through proper analysis of payables,receivables, gender ledger, and fixed assets forms collective form ofevaluation and transactional tracking of performances within theconstruction enterprises.
The advantages of ERP systems enjoyed by the construction companiesare based on proper application of the systems. First, the ERP systemallows the companies to make sound technical and strategic decisionson the manner in which to handle construction operations. Secondly,the system is used in the construction enterprise to aggregateinformation analysis for use in the management. Again, the ERPsystems use is advantageous in that it ignites improved visibilityand performance in these construction companies through harnessingeasy operations.
One of the disadvantages of applying ERP systems in the constructionindustry is that it is expensive to use. This is because it involvesa lot of planning, testing, configuration, and implementation of theapplication. Secondly, the ERP system used may not function wellbecause of too much customization process. Also, ERP systems aredifficult to learn and apply, especially when it comes withadditional costs incurred.
One of the recommendations to improve the ERP systems includeperforming due diligence before project startup. Secondly, theconstruction industry should change its systems transactions andupdate its business processes. The management should also be involvedin the project sponsorships. Again, there is needed to come up with astrategy to properly understand the ERP components before theirapplications.
Developing the ERP system for the construction companies iscurrently a need for the construction industry. Considering thefunctioning of the construction business is uniquely different fromother industries in the domain. In this industry, there is a need forthe development of specific oriented ERP system in the constructionindustry. The application of this system, which is under development,will offer a complete solution for the management of the entirefunctioning of the construction industry. The implementation of theBusiness Intelligence within the ERP system in the constructionindustry will assist the management in the decision making.Therefore, ERP systems used in the construction enterprises willassist in the overall growth and functioning of the industry.
Kalling, T. (2003). ERP Systems and the Strategic ManagementProcesses that Lead to Competitive Advantage. InformationResources Management Journal, 16, 4, 46-67.http://www.igi-global.com/viewtitlesample.aspx?id=1244&ptid=34848&t=erp+systems+and+the+strategic+management+processes+that+lead+to+competitive+advantage
Pelphrey, M. W. (2015). Directing the ERP implementation: A bestpractice guide to avoiding program failure traps while tuning systemperformance, p. 36-67http://www.ittoday.info/Excerpts/Requirements_Generation.pdf
Shields, M. G. (2001). E-business and ERP: Rapid implementationand project planning. New York: Wiley.https://books.google.co.ke/books/about/E_Business_and_ERP.html?id=ulVdinvkOoAC&redir_esc=y
Srivastava, D., & Batra, A. (2010). ERP systems. NewDelhi: I.K. International Publishing House.https://faculty.biu.ac.il/~shnaidh/zooloo/nihul/evolution.pdf
Definition of Terms
ERP systems are defined as integrated information systems, whichencompasses numerous business operations linking internal andexternal information across the entire business operations.
ERP software is defined as an enterprise application since it isdesigned in a way that large businesses can use it, and requireswell-trained personnel to analyze and customize data for upgrade anddeployment.
Business Intelligence (BI) refers to a process driven by technologyfor analyzing data and providing the right information for action toassists the corporate management, business managers, and users.
IT infrastructure is defined as the composite software, hardware,network services, and resources used for operations and managementexistence in the IT environment.
1Pelphrey, M. W. (2015). Directing the ERP implementation: A best practice guide to avoiding program failure traps while tuning system performance, p. 36-67
2Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 12-37
Pelphrey, Directing the ERP implementation, 43
4Kalling, T. (2003). ERP Systems and the Strategic Management Processes that Lead to Competitive Advantage. Information Resources Management Journal, 16, 4, 46-67
5Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 23
6Shields, M. G. (2001). E-business and ERP: Rapid implementation and project planning. New York: Wiley
7Pelphrey, M. W. (2015). Directing the ERP implementation: A best practice guide to avoiding program failure traps while tuning system performance, p. 47
8Pelphrey, Directing the ERP implementation, 49
9Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 25
10Kalling, T. (2003). ERP Systems and the Strategic Management Processes that Lead to Competitive Advantage. Information Resources Management Journal, 16, 4, p. 53-67
11Kalling, ERP Systems, 54
12Shields, M. G. (2001). E-business and ERP: Rapid implementation and project planning. New York: Wiley, p. 67-87
13Shields, E-business and ERP, 71
14Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 26
15Pelphrey, M. W. (2015). Directing the ERP implementation: A best practice guide to avoiding program failure traps while tuning system performance, p. 48
16Pelphrey, Directing the ERP implementation, 49
17Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 27
18Srivastava & Batra, ERP systems, 28
19Shields, M. G. (2001). E-business and ERP: Rapid implementation and project planning. New York: Wiley, 34
20Pelphrey, M. W. (2015). Directing the ERP implementation: A best practice guide to avoiding program failure traps while tuning system performance, p. 49
21Kalling, ERP Systems, 55
22Shields, M. G. (2001). E-business and ERP: Rapid implementation and project planning. New York: Wiley, 35
23Shields, E-business and ERP, 36
24Srivastava, D., & Batra, A. (2010). ERP systems. New Delhi: I.K. International Publishing House, p. 27
25Shields, E-business and ERP, 37
26Pelphrey, Directing the ERP implementation, 50